Austerity Does Not Work

Summary

This video discusses the British government's austerity program, comparing it to historical approaches. It critiques the current focus on government budget cuts rather than addressing the trade deficit. The presenter contrasts Reeves's neoliberal policies with Cripps's social democratic approach, highlighting how austerity measures impact different income groups. The video also explores the ineffectiveness of austerity in reducing national debt and suggests alternative economic strategies.

Takeaways

• 🎥 The video discusses the British government's austerity program and its potential ineffectiveness, with comparisons to the U.S. national debt situation.
• 🗣️ Reeves' austerity measures are criticized for potentially impacting low-income individuals, echoing past Tory policies, unlike the more equitable approach of the Atley government.
• 💼 The video contrasts Reeves' focus on government budget deficits with Cripps' broader focus on the nation's trade deficit, highlighting different economic strategies.
• 📉 Reeves is accused of protecting the wealthy by not raising income tax rates, unlike Cripps who implemented high tax rates on the rich.
• 🌍 The historical context of import programs is examined, with Cripps advocating for minimal imports to conserve foreign currency reserves, unlike Reeves' current approach.
• 🏭 The importance of the trade deficit is emphasized, with past strategies focusing on reducing it to ensure a sustainable economy, a concept missing from Reeves' policies.
• 📊 The sectoral balance approach is introduced to illustrate how government, private sector, and external surpluses and deficits interact, influencing the economy.
• 💸 The video suggests that austerity measures can lead to increased private sector debt, which is unsustainable in the long term and risky for economic stability.
• 💰 The script outlines three ways to reduce national debt: repudiation, taxation, or export-led growth, questioning the feasibility of these under current economic policies.
• 🌐 The necessity for a trade surplus to reduce national debt is highlighted, which is absent in Reeves' plans, indicating a potential failure of the austerity strategy.

Q & A

What is the main topic of the video?

The main topic of the video is the austerity program of the British government and its potential ineffectiveness, drawing parallels to national debt issues in the United States.

Who is Reeves in the context of the video?

Reeves is likely a reference to the Chancellor of the Exchequer, who is responsible for the austerity program discussed in the video.

What is the difference between Reeves' approach and Cripps' approach to budget management?

Reeves focuses on the government budget deficit, while Cripps focused on the trade deficit of the whole nation, with different policy implications such as cutting benefits to pensioners versus investing in housing and the National Health Service.

What does the video suggest about the impact of austerity measures on different income groups?

The video suggests that austerity measures may disproportionately affect those on low incomes, as seen in past Tory governments, whereas a Social Democratic approach might target the rich.

What was Cripps' policy on taxation during his time as Chancellor?

Cripps followed a 'soak the rich' policy, raising the top rate of income tax on the highest incomes to over 97%.

How does the video critique Reeves' approach to the national debt?

The video critiques Reeves' approach by stating that she is only concerned with the public sector deficit and not the trade deficit, which is seen as a more significant issue.

What is the sectoral balance approach mentioned in the video?

The sectoral balance approach is an economic analysis that divides the economy into three sectors: the private sector, the rest of the world, and the government, examining how their surpluses and deficits interact.

How does the video explain the relationship between government deficit and private sector debt?

The video explains that if there is a trade deficit, the government can only reduce its deficit by forcing the private sector into debt, which can lead to credit crises if not managed properly.

What are the three ways a nation's national debt can be reduced according to the video?

The video outlines three ways to reduce national debt: repudiation of the debt, taxation to pay it off, or exporting enough to cover it.

Why does the video argue that austerity measures are unlikely to work for Reeves' government?

The video argues that austerity measures are unlikely to work because they have historically failed, they do not address the trade deficit, and the government continues to adhere to policies that limit state investment, which is necessary for a sustained economic recovery.

Outlines

00:00

🎥 New Video Setup and Austerity Programs

The speaker introduces a new video setup and discusses the British government's austerity program, drawing parallels to the US national debt. They question the effectiveness of austerity, referencing historical approaches and the potential impact on different socioeconomic groups. The speaker contrasts the current Chancellor's focus on government budget deficits with a past Social Democratic approach that addressed the trade deficit and prioritized public needs over fiscal savings.

05:01

📊 The Fluctuations of Trade Deficits and Economic Policies

This section delves into the history of the UK's trade deficits, the impact of floating exchange rates, and the failure of free-market policies to balance trade. The speaker critiques the notion that market forces alone can regulate trade, using historical data to show persistent deficits despite economic theories. They introduce the sectoral balance approach, explaining how government, private sector, and external surpluses and deficits interact, and how government deficits can lead to private sector debt.

10:03

💸 Impact of Austerity on the Private Sector and Trade

The speaker examines how austerity measures, such as cutting winter fuel allowances, affect pensioners and indirectly influence the trade deficit. They argue that such cuts have minimal impact on imports and may lead to a decrease in domestic consumption, shifting government deficit to the private sector. The discussion highlights the limits of the private sector's creditworthiness and the risks of high debt levels, referencing the 2009 credit crisis as a cautionary example.

15:06

🌐 Strategies for Reducing National Debt

The speaker outlines three strategies for reducing national debt: repudiation, taxation, and export-led growth. They discuss historical examples of debt reduction through inflation and the challenges of taxing the wealthy to cancel debt. The importance of running a trade surplus for long-term debt reduction is emphasized, and the speaker criticizes the absence of such strategies in current economic plans, noting the constraints imposed by past policy decisions and the need for state intervention in investment.

20:08

🏛 The Failures of Austerity and the Need for State Capitalism

In the final paragraph, the speaker concludes that austerity, a strategy that has historically failed, is unlikely to succeed under the current government. They argue for a return to state capitalism to increase investment and address the trade deficit, contrasting this with the current reliance on private sector investment. The speaker suggests that without significant policy changes, including the potential devaluation of currency and increased state ownership, the UK will continue to struggle with debt and economic stagnation.

Keywords

💡Austerity

Austerity refers to a government's policy of reducing its budget deficit by cutting spending and increasing taxes. In the video, austerity is a central theme, with the speaker discussing the British government's austerity program and its potential impact on different socioeconomic groups. The video contrasts the current approach with historical examples, suggesting that austerity measures often disproportionately affect the poor and are not always effective in achieving economic stability.

💡National Debt

National debt is the total amount of money that a government owes to its creditors. The video script discusses the implications of national debt, particularly in relation to austerity measures and the government's ability to manage it. The speaker suggests that the focus on reducing the national debt can lead to policies that may not be in the best interest of economic growth or social welfare.

💡Trade Deficit

A trade deficit occurs when a country imports more goods and services than it exports. In the context of the video, the trade deficit is highlighted as a significant economic issue that austerity measures do not adequately address. The speaker contrasts the importance given to the trade deficit in historical economic policies with the current focus on the public sector deficit.

💡Sectoral Balance Approach

The sectoral balance approach is an economic theory that analyzes the interrelationships between different sectors of an economy, such as the government, the private sector, and the rest of the world. The video uses this approach to explain how government deficits can impact the private sector and the rest of the world, and how these relationships can influence economic outcomes. The speaker argues that austerity measures can shift deficits from the public sector to the private sector, which may not be sustainable in the long term.

💡Public Sector Deficit

The public sector deficit is the amount by which government spending exceeds its revenue. The video discusses how the British government's focus on reducing the public sector deficit through austerity measures might not be the most effective strategy for economic recovery. The speaker suggests that this approach can lead to a reduction in public services and increased burdens on the private sector.

💡Confiscatory Taxation

Confiscatory taxation refers to extremely high tax rates that are considered to be confiscatory in nature. In the video, the speaker contrasts historical tax policies that aimed to 'soak the rich' with current policies that protect the wealthy. The concept is used to illustrate how different governments have approached taxation as a means to reduce national debt and income inequality.

💡State Capitalism

State capitalism is an economic system where the state owns and controls the means of production. The video mentions state capitalism in the context of countries that have high levels of investment, such as China. The speaker suggests that historically, periods of high investment in Britain were associated with a larger state capitalist share in the economy, which is not the case in the current neoliberal economic order.

💡Floating Exchange Rates

Floating exchange rates are determined by market forces without a fixed peg to other currencies or commodities like gold. The video discusses the historical shift to floating exchange rates in the 1970s and the subsequent impact on trade deficits. The speaker argues that the free-market economists' claims that floating rates would automatically balance trade have not materialized, as evidenced by persistent trade deficits.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. In the video, inflation is discussed as a means by which national debt can be reduced, as it effectively devalues the currency in which the debt is denominated. The speaker notes that periods of high inflation have historically led to a reduction in the real value of national debt.

💡Taxation Policy

Taxation policy refers to the government's strategy for levying taxes. The video discusses how taxation policy can be used as a tool to address national debt and income inequality. The speaker contrasts the 'soak the rich' policy of historical figures like Cripps with the more recent trend of protecting the wealthy through lower tax rates, suggesting that effective debt reduction requires a progressive taxation policy.

💡Investment

Investment in the video refers to the allocation of funds into financial assets or real assets like infrastructure. The speaker argues that high levels of investment are necessary for economic growth and reducing national debt. They note that historically, periods of high investment in Britain were associated with a larger state capitalist presence in the economy, which is not the case in the current neoliberal climate where the private sector is expected to lead investment.

Highlights

Introduction of a new recording setup with a rock chip and a new microphone

Discussion on the British government's austerity program and its potential parallels with the US national debt

Critique of Reeves' austerity program, questioning its effectiveness

Comparison of austerity measures targeting low-income individuals versus the wealthy

Historical context provided by the Atley government's approach to austerity

Contrast between Reeves' focus on government budget deficit and Cripps' focus on national trade deficit

Reeves' protection of the rich by not raising income tax, unlike Cripps' 'soak the rich' policy

Cripps' import program principles focused on vital needs and industrial activity

Reeves' austerity measures, such as cutting winter fuel allowances, disproportionately affect low-income pensioners

The importance of the trade deficit in the context of the UK's ability to issue pound notes but not dollars or gold

Historical analysis of the UK's trade deficit post-1970s and the failure of floating exchange rates to balance trade

Sectoral balance approach to understanding the interplay between government, private sector, and trade deficits

Impact of austerity measures on the private sector's debt and creditworthiness

The limitations of asset sales to foreigners as a means to reduce the national debt

Three ways to reduce a nation's national debt: repudiation, taxation, or export-led growth

The role of state capitalism in high investment levels and the challenges for Britain to increase its share

Conclusion that austerity measures are unlikely to succeed, drawing parallels to historical failures

Transcripts

this video is the first one I've

recorded using a new setup using a rock

chip and a new microphone I hope the

quality will be better than now it's

getting under

Windows the videos

about the austerity program of the

British government but much of it

probably applies to issues about the

national debt in the United States as

well well so I'm talking about why

Reeves austerity program is unlikely to

work we had starma in Parliament talking

about the need to make hard

decisions and talking about hard

decisions sounds to me an awful

like a rerun of austerity there are

echos of

what the David Cameron uh government was

saying when they came

in but who is this going to be austerity

for is it going to be austerity for

those on low incomes as it was with the

Tories or will it be austerity for the

rich as it was with a previous labor

government under the Atley government

Crips was Lord

Chancellor not Lord Chancellor

Chancellor of the ex jaer he was a

Social

Democrat and not a a communist or

anything but his approach to the whole

budget was radically different to that

of the current Chancellor and I'm going

to bring it out just to show how much of

a contrast there is

between a Social Democratic approach to

this and a neoliberal

approach Reeves is focusing on money and

the government budget at deficit saying

there's a 22 billion black

hole Crips on the other hand focused on

the trade deficit of the whole nation

that is to say not just what the

government was doing and how to fix

it re proposed to make savings by

cutting benefits to pensioners whilst

giving billions to zalanski Crips

defense and directed it to housing and

the newly established and expensive

National Health

Service

Reeves essentially is protecting the

rich as far as we can tell by promising

not to raise income tax therefore not

raising the top rate of income tax which

is currently

48% CPS on the other hand followed to

soak the rich policy and rais the top

rate of income tax on the highest

incomes to just over

97% confiscatory levels of Taxation on

high

incomes now let's look at what he said

about his import program and I'm quoting

what he wrote he he said in

hansart our import program is based up

on three

principles the first is to buy as little

as possible from countries to whom we

must pay dollars or

gold the second is to buy the minimum of

food necessary to maintain a healthy

standard and the third is to buy the

minimum of raw materials to enable us to

maintain a high level of industrial

activity what we have therefore was an

austerity focused around the vital needs

of the public and of Industry

back in the 40s and 50s coal was

actually

rationed but Reeves isn't cutting winter

fuel allowances because she's worried

that pensioners are swander

fuel she's doing it just to save money

and the question is why because fuel's

something

real whereas money is just something

that is an entry in a computer

Ledger Crips was focused on the trade

deficit Reeves doesn't even think it's

important doesn't mention it she's only

concerned about the public sector

deficit but why was a trade deficit

considered more important

then the UK government and the bank of

England could in principle issue as many

pound notes as it

wanted but it couldn't issue the dollars

and gold required to pay for

imports thus dollars and gold

constituted a hard limit on the Imports

the country could

make that was the

situation right up

until the beginning of the

1970s when

the when Crips was writing a pound was

worth $4

do which allowing for the dollar being

tied to the uh gold meant a pound was

worth 0.16 o of

gold in 1971 the Tes floated the pound

and removed it from any fixed ratio to

Gold free markets economists claimed at

the time this was a great Advance they

said that floating the exchange rate

would automatically bring trade into

balance bring the remove for all time

time the need for the government to

worry about trade

deficits they said if there was a

surplus of imports the pound would fall

and that would automatically boost

exports the magic of the market would

make it all work out well that was a

story that free market

economists promoted back in the

70s in the sson man period of the heath

government which was pre that ISM before

thatcherism what actually happened well

this shows the bottom graph shows the

trade deficit or the balance of trade as

a percentage of

GDP and you can see that whilst there

was Tiny trade what now seemed tiny

trade deficits during the

1960s things changed once they floated

we went into a wild

oscillation but it was a wild

oscillation that has been dominated by

deficits there was a brief

period during the

1980s when North Sea oil

allowed a trade surplus to

develop

but the claims by the free market

Economist that this would automatically

equilibrate didn't occur Trade Surplus

did did

happen and when the North Sea oil ran

out there has been a persistent trade

deficit so the whole experiment of

floating exchange rates as a

means to stop worrying

about the balance of

trade doesn't mean you stop worrying

about the balance of trade because it's

fixed it just means that under the ne

liberal order

the government absolves itself of any

responsibility for the trade

bonds but it's still how operates it

still has an

effect so let's look at another way of

analyzing it don't just look at the

trade deficit don't just look at the

public sector deficit but look how they

all interact and that's known as the

sectoral balance approach

this divides the economy into three

sectors the private sector which is both

households and

firms the rest of the world and the

government

if the government is in Def the

government is in blue if the government

is in deficit it

shows negative

here below the zero line if if a sector

is in Surplus it shows above the zero

line now the first thing to note is that

the surpluses and deficits of all three

sectors have to cancel

out and this is why the whole thing is a

mirror image graph where there's a peak

above there's always a peak below where

there's a peak above a peak below a

trough above there's a trough

below these are because the sector

sectoral balances must sum to zero

because debts are always between these

agents we're only considering the debts

between these three categories of

Agents now the important point to notice

is that the government has been running

a large

deficit it's been running a large

deficit since about 2000

and over the same period the rest of the

world has been running a large Surplus

there was a brief period when there's

plenty of oil when the rest of the world

didn't run a surplus with respect to

Britain but over most of the period the

rest of the world has been running a

surplus in other words Britain as a

whole has been running a

deficit now so long as there's a trade

deficit The Government Can Only reduce

its own deficit by forcing the private

sector into debt this takes the form

either of

individuals running up their credit card

and mortgage

debts individuals selling off assets

that are ultimately bought by foreigners

you can

see the large scale purchase of houses

by Foreign speculators in London for

example

another form of deficit of the private

sector is firms borrowing from a board

or firms selling off assets to foreign

owners so a lot of companies like the

water companies have passed into foreign

ownership now let's look at what Reeves

sort of policies like cutting winter F

fuel allowances

do it affects all pensioners over

£1,000 Which is less than half the

median income in Britain so it's a the

threshold is extremely

low now how will this affect the trade

deficit it'll affect it very

slightly if pensioners use less gas to

heat their houses there'll be lower gas

Imports but only some of Britain's gas

is

imported but it follows that they all Al

cut back on domestically produced goods

and services domestically produces

produced energy so the reduction in

Imports will be considerably less than

the cut in incomes going to the

pensioners if they have savings on the

other hand they can run down their

savings to pay for heating and to this

extent what the government does is shift

part of its deficit onto the private

sector it shifts it onto

those pensioners who are fortunate

enough to have some

savings the problem is that the private

sector has limit limited Credit Credit

worthiness you can only shift the

borrowing onto the private sector for a

short

time if the levels of credit taken up by

the private sector get too high

you get a 2009 style credit

crisis it all seemed to be going well

for Tony Blair and Gordon Brown until

2009 secondly the stock of assets that

can be sold off to foreigners is now

much lower than it was 25 years ago when

the big trade deficits really took off

and this is one reason why 14 years of

Tory austerity really completely failed

to eliminate the the deficit let's zoom

in on the last few

years up until

the covid uh crisis the

government

deficit went along with Rising private

sector deficits the yellow area here

there was a trade deficit to the rest of

the world read the government reduced

its deficit

and shifted it onto the private

sector then came

covid and the government through the

bank of England printed vast quantities

of money to cover its expenditure over

that period the effective and also due

to supply chain issues there was a

significant reduction in

Imports so the deficit to the rest of

the world reduced somewhat

and having printed all that money the

private

sector's cash surpluses built up so you

see a big rise in private sector cash

surpluses over those

years now how

can a nation's national debt be

reduced well basically they're only

three ways of doing it you can repudiate

the national

debt you can tax it it out of

existence or you can export enough to

pay it

off you can get a fast repudiation as

the Russians did in

1917 by

simply repudiate all

debts incurred by previous

governments you can slowly repudiate it

VI

inflation blue line here shows the

British national debt shoots up during

the first world war shoots up during the

second world war and then exponentially

declines in the postwar period now most

of that

decline is due to the exponential

decline in the value of the

pound the national debt is denominated

in pounds has to be paid back in pounds

and if the pounds are worth a fraction

of what they were when they were

borrowed the national debt as a

percentage of GDP therefore

Falls so there's many ways to skin a

cat Wilson may not have been as radical

as Lenin but he did greatly reduce the

national debt

by the end of his period the national

debt had been

really reduced a great deal

the other way to deal with it is by

taxation the national debt is in the

form of bonds which are owned either by

Rich individuals or by

Banks to cancel it you have to be able

to tax those who actually hold the

bonds either people who own them

directly or hold big cash balances in

the banks which are backed by

bonds essentially this means what you

have to have

over time is a confiscatory level of

Taxation on large states so that those

who have large Financial

assets have to run them down Year bye

due to

taxation you can never do it by cutting

expenditure going to people who don't

hold bonds or don't have big bank

accounts you can only do it by

cancelling the

credits that those who own the

government debt

have the other way of doing it is by

exporting if a state has no

colonies it can't directly tax

foreigners including taxing those who

hold the national debt now

obviously prior to Indian independence

the British State could tax India so

that was a significant source of

Revenue but afterwards it can only tax

them indirectly by selling them exports

on Whose production it had previously

levied

taxes if it does this the state can

eventually become a net creditor not a

net debtor

most obvious example of that in Europe

is Norway which taxes oil exports and

has built a huge Sovereign asset fund

run having a big

debt so a long-term policy of reducing

rather repudiating the national debt

actually requires a state to run a trade

surplus and that

is just as relevant for the USA as it is

for

Britain but this is completely abs

from the plans Reeves is putting forward

there is no plan to eliminate the trade

deficit to do it would require the

deliberate devaluation of the pound

alongside raising the share of national

income going as

investment now the deliberate

devaluation of the pound was made

Impossible by Gordon Brown making the

bank of England independent so it would

actually require legislation to remove

the independence of the bank of

England and raising the share of

national income going as

investment is ruled out by the fact that

the government

continues the thatcherite doctrine that

the private sector has to be what does

the

investment and we know from past

experience that the private sector

will not invest sufficiently the

countries which have high investment at

the moment like China are able to do it

because a large part of the economy is

owned by the

state because they are basically State

capitalist

economies when Britain had high levels

of

investment compared to now in the 50s

and 60s it was when there was a large

share of State capitalism in the economy

and to have continued it they would have

had to have increased the state

capitalist share but we know that didn't

happen so basically I'm

saying the

strategy of

austerity a strategy which failed in the

1930s a f strategy which has failed

under the Tories since 2009 if that is

pursued by the stama government it will

fail again